SSH Group’s latest acquisition to boost earnings, add third revenue arm
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Services company SSH is embarking on a “transformational” acquisition of mining and civil project machinery hire company Karratha Machinery Hire that will be immediately earnings accretive.
The acquisition of Pilbara-based KMH, which has established a proven track record over the last 30 years and has over 140 pieces of machinery for hire, is an opportunity to rapidly expand the company’s fledgling equipment division that did not contribute to its record CY2021 revenue of $90m or its record $51.7m revenue in the first half of 2022.
With KMH reporting unaudited revenue of about $6.3m and EBITDA of about $3.8m for the financial year ending 30 June 2021, the acquisition is expected to more than double SSH Group’s (ASX:SSH) EBITDA for FY2021 to $6.2m and 1H FY2022 EBITDA to $3.85m, a 121% increase over the same period the previous year.
The acquisition is also expected to deliver earnings per share accretion of about 139% on a FY2021 pro-forma basis.
SSH will fund the deal from existing cash reserves and a new equipment financing facility.
“The transformational acquisition of Karratha Machinery Hire represents a highly synergistic and earnings accretive acquisition that is in line with our stated intention to acquire quality businesses with strong foundations,” SSH managing director Daniel Cowley-Cooper said.
“With the People and Safety divisions continuing to set record financial performance, we have put considerable effort into identifying the right partners to assist us in launching the third revenue arm of our business, the Equipment Division.
“The cash flow positive acquisition of KMH introduces a higher margin operation that we believe is just the beginning of growth for the newly formed Equipment Division.”
He added that the acquisition will also grant synergies from the ability to offer existing clients and those of KMH with a complete and holistic offering of service, which should lead to increased revenue and margins.
KMH specialises in the long and short-term dry hire of quality mobile plant, earthmoving equipment, trailers, and mine-site compliant vehicles in support of mining and civil projects state-wide.
It services Tier 1 clients such as Valmec, Monadelphous and Veolia in the Pilbara region across the mining, construction, and civil sectors with an equipment asset value of more than $10m.
KMH will operate as a wholly owned subsidiary of SSH and remain under the operational management of its highly experienced and reputable management team.
Likewise, SSH’s board and executive team will remain unchanged though its management will support and oversee KMH operations.
SSH will pay a total of $15m to acquire KMH. This includes $10.5m in cash at completion for the hire equipment and a further $2.25m consisting of $1,687,500 in cash and $562,500 in shares for all other assets (including goodwill) at completion.
A further $2.25m (with the same cash and share split) is payable six months after completion of the acquisition.
This article was developed in collaboration with SSH Group, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.